Got Student Loans?

June. It is a fine time of the year. It is a time for Father’s Day and graduation. The fathers probably pretty well have it figured out. The graduates, on the other hand, may be still working on it. Congratulations, though, you’ve made it!

Graduates all across the country are now starting to deal with the problems of finding a job, starting their careers, paying taxes, and so on. They also have to start making their student loan payments, which, as always, are too high. Toward the end of their senior year, many start getting nervous about what they are going to do in order to repay, in some cases, massive amounts of debt. For some graduates, the commitment may seem insurmountable.

Another factor influencing perceptions of some graduates is the dismal job market. Combined with the pathetic buying power of the dollar, the future can look bleak.

However, it’s only bleak if you allow it to be bleak.

Many times, I have told both high school and college graduates to pay no attention to the news media when they are reporting on the problems of the economy. I have always said it is better to go out and make your own economy, rather than joining a bad one.

Then I introduce the students to the concept of starting their own business. Immediately, some of them will start rolling their eyes and start voicing all kinds of excuses as to why they cannot do that. The most popular excuse is, of course, “I don’t have the money to start up a business.” Next to that is, “I don’t have time to start a business.”

When students start talking about not having the time or money to start a business, I point out that they can start a business and they can be successful. You are not successful only if you allow yourself to fail. Oh, don’t get me wrong, you may fail a few times. But is it a failure if you take what you learned, apply it to a new company and finally become rich?

We live in a magical and marvelous time. Never in the history of humankind have there been more opportunities to make money. Oh yeah, and that is without working – at least too hard.

The hard part in this new age, is having the imagination to come up with the idea that will make you money. This part’s called “work.” Running the business after you determine what you want to do is the easy part. Coming up with your idea, well, that is somewhat hard.

When talking to graduates about starting their own business, this is the point at which some will become glassy eyed and walk off. Those who stay past this juncture, are about to get a great head start in their financial lives.

Students throughout the nation are carrying a substantial debt for their college educations. Over the past 10 years, student loan debt has increased four-fold. In 2003, the total was 240 billion and now it is more than $1 trillion. Moving further into the 21st century, this debt will increase substantially. Each year, 20 million students enroll in universities in the nation. In order to make ends meet, 12 million of those students must borrow money to cover their academic costs. This ends up as a substantial debt for many of those students.

One of the problems of a great debt is how it delays the start of a young person’s life. Many delay major purchases – houses, cars, and other large items until later in their lives. They also put off important life events, marriage, children, and more. This is not good for the young person, their family, or our nation.

So, the question becomes one of how to solve this debt problem…

As I mentioned, we live in a magical and marvelous time. As young people join the work force after graduation, they have tools no other generation before them had – namely, the Internet.

The neat thing about the Internet is that one is capable of selling anything 24 hours a day, seven days a week, 365 days a year. Let me put that into some perspective for you…

If you were to come up with a great idea and everyone liked what you had to offer and had to have one, maybe you could sell an average of seven of your widgets each hour. Hmmm… That’s seven widgets x 24 hours x 365 days a year equals 61,320 total widgets.

Now let’s assume your widgets cost you $1.98 per widget for production and you are selling them at $9.95 for a profit of $7.97 per widget. Take out another $2 for website hosting, banking fees, and the like and you have a profit of $5.95 per widget. Now, multiply that by 61,320 widgets.

Did you come up with the same number I did? Was it perhaps $488,720? Could you maybe live on that? And pay off some student loans?

Now here is the real secret. You have to develop your business to run autonomously. In other words, you have to design a system that runs without your constant attention. The way to do this is to hire a third party vendor to take the orders, ship your product, and give you the money less their fees. At the end of the month, the total amount of your work would be to compare their statements against your bank account statements.

What would something like this look like?

About like this:

MONEYFLOW

Now, here is the important thing about the flow chart above. The first person you should pay is yourself. Learn to live with less and always take 10 percent of your paycheck and let it start growing in savings.

From there, it can flow into personal checking and then off to pay all your bills. Well, maybe most of your bills. (And be careful with credit cards.)

Regarding your small Internet business, after the money comes in from the business, it will go into business checking. Set up an “auto-pay” rule so that your student loan payment is paid in full each month on time by the business account. In the beginning, you may have to supplement that payment with your personal checking account (see the dashed line). After a while, though, you should start making enough money from your small business to let it pay the student loan payments on its own – month after month after month.

When you can, if there is an excess, you can funnel the extra money into your business savings. One day, that business savings account might exceed the balance on your student loans. Do you just pay it off? Naw – let it ride. You are accomplishing a great payment record and building credit with on-time payments all at the same time.

After all, what does it matter? If you are successful at living on your paycheck and you let the business accounts build, you are far ahead of the game.

Good luck!

-30-

©2014 J. Clark

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6 Responses to Got Student Loans?

  1. Al Peterlin says:

    Hi Joe,

    Since you are interested in aviation, I thought this might be of interest. I am looking for any info on Leonard Peterlin, a Drane Field Soldier who died in Lare Wire on Feb 11, 1945. I have some info from the newspaper, but I wonder if there is any other source of info about Drane Field and maybe soldiers from that time.

    Thanks for letting me ask.

    • Joe Clark says:

      Al,

      No, at the moment I don’t have information on Leonard Peterlin, who I assume, is a family member. If I come across his name, I will be sure to let you know about it. I have a few contacts from that period of time who are still alive, and I will ask them. However, I have a feeling their minds will have forgotten important details from that time now.

      Joe

  2. David Rodriguez says:

    Greetings Professor,

    I loved reading this post, it reminded me of the many conversations we had during and after your classes at ERAU. However, I have to play devil’s advocate, especially because I am an aspiring entrepreneur (while also performing the duties of an active duty USAF Officer…). The gap I see in this blog post is how to get up and running once you get passed the “idea” phase. This is where most young folks run into a brick wall. The “widgets” you mentioned have to be generated or created somehow. Unfortunately, most of the time, that means you are going to need some start-up money. With the mounted debt from student loans, and the rising difficulty for graduates to find substantial income in the job market; this leaves us with only a few options if we are brave enough to resist the urge to give up entirely.

    The first option I have found would be to attempt a small business loan option. This is possible through several venues, and I have found some great advice through the Small Business Association (SBA). However, many lenders want to see a substantial investment already in place, and if you are a fresh grad with empty pockets, or heaven forbid…have limited credit history, you can be hosed quickly!

    The next option would be an outside investor. I have found that these come in all different forms. Angel investors, venture capitalists, partnerships, the list goes on and on. The problem here is, once again, personal investment, credibility, and selling them on your experience. The other drawback is that they aren’t giving you money out of the kindness of their heart, and they are going to want a piece of your hard earned profits!

    Now, I have also looked into government sponsored grants and various other programs. But, being as they are run by the government, they are only targeting support to specific types of business and VERY specific types of people (if you are not a single child of a racial minority with a disability and a recovering addict, you need not apply). The other drawback of these programs (at least from what I have found) is that they only provide a small amount of assistance. Most were only a few thousand dollars. While I agree that every bit helps, this just is not enough to get up and running in most cases.

    So, professor, I implore you, can you please provide some further insight as to what us hard working, ambitious, young Americans can do to get started? I have an “idea”, but I feel as though the real hurtle is the start-up for most of us. What happens after that is just a test in management and creativity…

    I truly miss our conversations sir.

    Very Respectfully,
    DAVID A. RODRIGUEZ, 1st Lt, USAF

    • Joe Clark says:

      David! Good to hear from you!

      I agree, the two most difficult things for young people is determining what their widget will be and finding the money. Again, this is part of engineering the business.

      One of the most important to do is in molding a company that requires little startup funding. This is sometimes difficult, but not impossible.

      One thing about my business is that once someone places an order on my website, I have already made my profit (again, part of the engineering process). Another part of the engineering was making the initial startup free of excessive costs. Sometimes a little difficult, but not impossible.

      In other words, minimal investment to get going, save the profits and reinvest back into the company, and before you know it, you are there. In essence, you have acquired the money through your own efforts to be successful.

      You have correctly identified all the possible sources of investors and avenues to acquire funding. I would work really hard at the method in the paragraph above. This way, you don’t have to pay back anyone or institution. You can keep more of your profits this way.

      You hit on another important point in your comment. That is, being a recent college graduate with no credit history. That is one nice thing about the plan depicted in this posting. If a student starts a business and makes their student loan payment automatically from their business checking account, they will be developing a great credit history. From there, they will be able to do anything requiring loans.

      You alluded to needing a lot of money to start a business. Not so and again, part of the engineering process. My wife and I started our publishing company with less than $500. Since then, yes, we have invested a lot more – but those investments came from company profits and other money we could pay into as available.

      Yes, we had great discussions. When you visit the campus, please let me know.

      What are you doing for the Air Force?

      –Joe

      • David Rodriguez says:

        Thank you so much for this reply sir! Since this article, I have designed my “widgets” and have begun the process of rapid prototyping and soon production! These are exciting times for my little side business, and I would like to thank you for inspiring me to take this on!

        I am stationed at Cape Canaveral AFS currently. I am a Range Operations Commander, and the Chief of Operations Training for the Space Wing both here at CCAFS and Patrick AFB. All those dorky days in ROTC paid off!

        I will definately try to link up with you the next time I make it up to Daytona, we have some catching up to do, and I would really like to bounce some business ideas off you in a private forum.

        Thanks again!

        -David

  3. Joe Clark says:

    Excellent! Can’t wait to meet with you to catchup and explore more business ideas.

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